Could Social Turmoil Send Papa John's Int'l, Inc. (PZZA) to Record Heights?

A peculiar analyst note has Papa John's Int'l, Inc. (NASDAQ:PZZA) shooting higher

Josh Selway
Jul 20, 2016 at 10:50 AM
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Many on Wall Street often speculate about how societal developments could affect the stock market, but analysts at KeyBanc Capital have taken it a step further. Specifically, the brokerage firm upgraded Papa John's Int'l, Inc. (NASDAQ:PZZA) to "overweight" from "sector weight," based on a belief that people are "eating more at home amid the current political/social backdrop." As further evidence, KeyBanc cited slowing traffic to casual dining establishments during the past several weeks, which corresponds with a series of violent incidents across the country. True or not, PZZA stock is rising as a result, last seen 3.5% higher at $71.57. 

Looking back, PZZA shares have been storming higher for several weeks. During the past three months, in fact, the stock has outperformed the S&P 500 Index (SPX) by almost 16 percentage points. Going back even further, PZZA bottomed below $43 per share in late January, meaning the stock has rebounded by roughly 67% since then, while filling its bear gap from early November in the process. 

If PZZA continues this red-hot pace, the stock could benefit from additional bullish brokerage notes. For instance, not a single analyst considered PZZA a "buy" as of last night's close, and the stock has now eclipsed its average 12-month price target of $69.67. This suggests it's possible for bullish notes or price-target increases to come down the pike in the future -- potentially helping PZZA take out its all-time high of $79.40 from last July. 

Interestingly, short interest has been growing on PZZA for some time. During the most recent reporting period, this figure jumped by 7%, and the 3.3 million shares now sold short sits just below seven-year-high territory. At the stock's average daily volumes, it would take these bears two weeks to cover their positions, so a short-squeeze situation could also help the shares. 

Sure enough, this pessimistic outlook is shared by Papa John's Int'l, Inc. (NASDAQ:PZZA) options traders, too. Though volume has been light on an absolute basis, it's still shocking to see that more than 27 puts have been bought to open for every call during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, PZZA's Schaeffer's put/call open interest ratio (SOIR) of 2.15 reveals put open interest more than doubles call open interest among near-term strikes. Simply put, an unwinding of these skeptical positions could provide yet another tailwind for PZZA stock. 

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